All Forum Posts by: Dani Beit-Or

Hi, 

Are there any lenders offering HELOCs or second mortgages on rental properties with equity?

I'm exploring ways to access equity without selling.

@Jaron Walling - Thanks for the answer!

@Dave Foster, thank you for the detailed info! I understand your points, but I want to clarify the tax consequences in my example. I’m simplifying the numbers here to focus on the main concept, so I’m leaving out factors like expenses, improvements, property management, repairs, etc., for now.

Here’s the scenario:

- I bought my house in 2022 for $1MM and used it as my primary residence.

- In 2024 (after 2 years), I moved out and converted it into a rental. At the time, the house's estimated market value was $2MM.

- By summer 2025, I plan to sell it. Let’s assume I can sell it for $2.5MM, net after sales expenses.

In a straight 1031 Exchange, I would sell the property for $2.5MM and need to exchange into another property (or properties) of equal value to fully defer taxes.

My questions:

1. Since I have the $500K exemption, does that reduce the exchange amount from $2.5MM to $2MM? Or do I still complete the 1031 exchange for the full $2.5MM, with the $500K deduction only reducing the deferred tax owed?

2. Also, does the 1031 exchange cover just the $500K gain (appreciation since converting to rental) or the full $1.5MM gain?

Thanks for helping me understand how the $500K exemption interacts with the 1031 Exchange!

If my wife and I own our own house which have appreciated well over 1 million, and I would like to use a 1031 exchange in order to defer taxes - 
I have these questions, let's assume we purchased it for $1 million, and it's now worth 2 million dollars and I lived in it for the past 3 years as my primary residence.

1. Will I still be able to use the $250,000 per spouse exemption on the appreciation, and how will this impact my 1031 exchange?

2. In order to benefit from a 1031 exchange to defer my taxes will I need to convert my primary residence into a rental property and if I do, what's the minimum amount of time that I need in order to hold it as a rental to make sure it qualifies for a 1031 exchange?

3. Say we rent it out for 1 years after we move out - will the defer amount in the exchange be our entire appreciation?  only the appreciation gained during the leasing period? and how will the $500k exemption play into it? 

Subject-to deal: 

Cash required: $35k + 295k existing mortgage + 5k in misc = $335k for a 350k 2021 house.

Pros

2021

35k needed

3% int. rate

Good schools

Good location 

CONS

$145/m in HOA

Cashflow is tight

Mortgage Info

Last Recording Date 10/6/2021

Loan Type CONVENTIONAL

Original Loan Amount $319,105

Loan Term 361 Months

Est. Interest Rate 2.99 %

Est. Loan Payment $1,341 

Est. Loan Balance $295,000

Loan Maturity Date 11/1/2051

Property Specifications:

SFH

Bedrooms 4

Bathrooms 3

Square Feet 2316

Year Built 2021

Garage Size 2

Schools Rating (scale 3-30, 30 is best) 18

Lot size (sq ft) 7,631.0

Purchase price: $330,000

Market Value: $350,000

@Ferrode Joseph 

Cash flow (CF) might be challenging these days, but it's definitely not impossible.

So, how do you analyze your properties?

We've been using a proprietary tool (an Excel) that we created about 15 years ago. With this tool, we've analyzed and bought around 1000 long-term rentals, and over the years, we've analyzed approximately 75,000 properties with it. It's been a reliable tool for us, but like any tool, it's crucial to know how to use it properly and not rely on it blindly.

I've noticed that many investors tend to use rules of thumb when analyzing properties instead of diving into the specifics of each property. They often make worst-case assumptions, which can lead to always seeing the worst-case scenario and missing out on good opportunities. I've been there and done that myself. Having a good tool and using it correctly can make a huge difference.

Another important question to ask is: What's your cash flow expectation? Are you looking for $100 per year? $3000 per year?

We still find cash flow properties. Most of the ones we come across generate around $2000 per year in cash flow when we analyze them realistically. This takes into account factors like mortgage payments, vacancies, HOA, and so on.

@Yair Zarmon 
Do you know for sure you can get a mortgage in the US, or are you just assuming you can? The truth is, about 99.5% of lenders who offer conventional mortgages in the US won't lend to someone who isn't based in the US, even if that person is a US citizen living abroad or works for a US company. This is a common problem we see with many investors who are based outside the US.

But don't worry, there are other options besides conventional mortgages. While the terms might not be as good, they're not necessarily terrible.

I bring this up because we've seen foreign investors pursue the BRRR model, only to find out they can't get a favorable mortgage when it comes time to refinance. This can cause their plan to pause or not work out as they hoped.

So, when you're shopping around for mortgages that fit your situation, be careful. Many mortgage brokers will say they can help you, but most won't be able to follow through when it comes time to close, which can put your deal at risk.

If you have $250,000, you might want to consider buying the property outright with cash. Then, once you own it, you can look into refinancing without the risk of a lender failing to perform.

As for which strategy to choose, think about picking one that fits your situation and has the best chance of success, especially since you're new to investing and live in another country.

Vision the follwoings:
Option 1: BRRR - This involves a lot of micromanaging and supervision work during the renovation process, including dealing with contractors, permits, and other details. Doing all this from a distance, especially as a newbie, can be challenging to say the least.

Option 2: Buying a nice rental property (maybe with cash) in a good area. It might need some minor cosmetic work but would be close to rent-ready. You could rent it out long-term or maybe as a short-term rental. This option involves less hassle and stress from investing remotely, although it might not sound as exciting as the BRRR model.

Either way good luck (behatzlacha) 

Hey there,

I'm in the market for a single-family home (SFH) on about an acre of land in St. Louis County, MO.

The lot I'm eyeing is pretty narrow, roughly 100 feet wide and 475 feet deep. The existing house is closer to the street, leaving enough space for two more houses to be built behind it.

To make this happen, the lot would need to be divided into three parts. Then, an easement would need to be created alongside the first house to allow access to the others behind it. Luckily, the layout of the lot and the house makes this possible.

Here are my questions for anyone familiar with this kind of situation, especially in St. Louis County:

1. How much should I expect to pay to divide the lot? Are we talking a few thousand dollars or tens of thousands?

2. How long might this process take? Are we looking at several months or over a year?

3. Is parceling land known to be tricky in St. Louis County?

Any info or insights you have on the process or specifically on St. Louis County would be super helpful.

Thanks!

 If you invoice them and send to a collection agency, why do you still sue in small claim? 

@melanie P 

TY - THIS IS VERY helpful!

I've encountered several situations where tenants not only broke their lease but also caused damages, sometimes even leaving before the lease ended with damages behind.

To clarify, when I mention damages, I'm not talking about normal wear and tear but rather significant repairs costing between $5,000 to $8,000, which don't qualify as vandalism for insurance purposes.

In the past, property managers I've spoken to have often discouraged pursuing tenants for these damages, citing it as not worth the effort.

Here are my questions for you:

- Would you pursue the tenant?

- Does pursuing the tenant involve obtaining a court judgment, or can I simply invoice the tenant and then involve a collection agency if they don't pay? In other words, is legal action necessary? 

- If you have experience pursuing tenants, what approach did you take? Was it challenging or relatively straightforward, and was it ultimately worthwhile?

Any insights or experiences you can share on this matter would be greatly appreciated.

Thank you.